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Aviation crisis could cause lasting damage to oil markets

Chris by Chris
7 May 2020
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Aviation crisis could cause lasting damage to oil markets
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Last Friday, Warren Buffett served a new blow to an already troubled industry, shaking it to the core: The celebrity investor announced that Berkshire Hathaway had sold all its holdings in airlines.

The move sent ripples through the oil industry, as well.

The coronavirus pandemic had changed the world, Buffett said. It has also changed the air transport industry–and the changes may be lasting.

As one of the most significant sources of oil demand, air transport is intimately linked to the oil industry. This means any lasting changes to one would inevitably lead to lasting changes in the other.

“I don’t know whether two or three years from now that as many people will fly as many passenger miles as they did last year,” Buffett said during a virtual shareholders’ meeting. “They may and they may not, but the future is much less clear to me about how the business will turn out through absolutely no fault of the airlines themselves.”

When the man known as the Oracle of Omaha doesn’t know what the future holds to an extent to make an investment mistake, things must be really bad. Indeed, they are: jet fuel was the oil derivative that has registered the greatest demand plunge so far this year, according to the International Energy Agency.

Over the full year, it is likely to book a 33.6-percent total decline, equal to about 2.4 million bpd, according to Rystad Energy. There is talk about peak oil demand resulting from the pandemic.

Peak oil demand has replaced peak oil supply as the doomsday scenario for oil in recent years thanks to a drive to replace fossil fuels with renewable energy sources to reduce humankind’s catastrophic carbon footprint. This drive is still on, despite the pandemic.

In fact, the European Parliament has sprouted a “Green recovery alliance” that will seek to make sure that crisis recovery will be tied to environmental targets.

“The COVID-19 has not made the climate crisis go away. The public money that states and Europe will spend to reinvest in the economy must be consistent with the Green Deal,” French MEP Pascal Canfin, who initiated the alliance, said.

The International Monetary Fund has also sounded a cautionary note against a total return to business as usual, overlooking environmental ambitions.

“Taking measures now to fight the climate crisis is not just a ‘nice-to-have’. It is a ‘must-have’ if we are to leave a better world for our children,” IMF’s chief Kristalina Georgieva told the Petersberg Climate Dialogue last week.

“What we do now will not only reshape our economies and societies; it will also reshape humanity’s future on this planet,” she said. “A ‘green recovery’ is our bridge to a more resilient future.”

So, theoretically, this would mean more money for renewables and more motivation for legislation and other measures seeking to curb people’s hunger for oil products.

This will come while the oil industry—both upstream and downstream—is reeling from the blow from the coronavirus, with even Exxon posting its first quarterly loss in decades.

Companies are slashing billions in spending, and they are shutting in wells: a risky business because sometimes a shut-in well cannot be brought back to life.

Some have filed for bankruptcy, and more are preparing to do just that. Oil nations such as Russia and Saudi Arabia are bracing for budget revenue blows, and virtually everyone is cutting oil production.

Normally, this would eventually lead to a shortage. However, as suggested by current trends, the situation is as far from normal as it can be. U.S. shale companies will not be the only ones to start falling like dominoes. Many airlines are hanging by a thread, and even the top players in the air industry–including Boeing, Airbus, and British Airways–are feeling the pinch.

It’s a painful one: Boeing said it would be cutting 10 percent of its workforce after seeing a considerable loss in the first quarter. Airbus is also cutting jobs and warning its remaining workforce that it may not survive as it was, “bleeding cash at an unprecedented speed.” British Airways said it would cut as many as 12,000 jobs.

Four airlines have already gone under and this is just the beginning. According to industry bodies, as much as 85 percent of the world’s airline could be bankrupt by the end of the year.

Now picture this: within a year, air travel could become a luxury few can afford, the way it was decades ago. Some believe it would take the air travel industry three years to return to pre-crisis performance, so this means no truly lasting damage.

However, uncertainty remains a keyword. Nobody really knows how things will turn out. If air travel changes for good, the oil industry will change for good, as well, helped by the generous efforts of pro-green governments and international organizations. We may indeed witness the end of oil demand growth.

Source: Oilprice.com

Chris

Chris

About us: To Bring to you, Engage and Empower our Readers We are truth-seekers and storytellers. We are journalists, writers and finders, united by a mission to inform, engage and empower our readers. We bear witness to history as it unfolds and explains not just what happened, but why, and what it means to you. Our stories take you to the farthest corners of the nation, and we bring you news from around nation to you, delivering content and services that inform and enrich your lives, your families and your communities. We are available on various social media handles. We stand for excellence in our stories. We are committed to serving you. We are...... Tel: 0206386139 Watsup: 0206386139 Email: extranewsgh@gmail.com Website: www.extranewsgh.com

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